Home sellers reduce asking prices at highest rate since pre-pandemic as rising rates hit buyers

According to a new report, the housing market is turning into a buyer’s market as rising mortgage rates begin to reduce purchasing power and demand.

Sellers are increasingly forced to lower their asking prices, with discounts at their highest levels since before the pandemic, real estate website Zoopla said.

Research has shown that six percent of homes currently for sale have had their asking price reduced by five percent or more.

While recent stamp duty cuts will make it easier for some first-time buyers to get up the housing ladder, Zoopla said rising mortgage rates will impact home demand next year.

“With home values ​​rising during the pandemic and rising mortgage rates, we will face a significant blow to household purchasing power through the remainder of 2022 and into 2023,” said Richard Donnell, director of Zoopla.

Stamp duty changes are welcome and will boost some sectors of the market, but overall they are unlikely to offset the impact of higher mortgage rates on housing activity, he added.

The cost of a mortgage has risen significantly following successive increases in the Bank of England’s base rate, with the average rate on five-year fixed mortgages reaching a seven-year high, according to Moneyfacts.

The five-year fixed rate rose from 2.64 percent in December 2021 to 4.33 percent last week – and that was before taking into account the effect of the mini-budget and the falling pound.

A wave of major lenders pulled mortgage deals from sale this week as financial markets are shaken by the volatile pound and expectations that the Bank of England will implement a more aggressive rate hike.

The effect of higher mortgage rates on market activity is exacerbated by significant increases in house prices during the pandemic.

Average asking prices rose another 8.2 percent, or £19,650, to £258,100 over the year to August, although the quarterly growth rate is slowing, Zoopla said.

While it saw no immediate signs of a major slowdown, the real estate portal said it had noticed a “clear upward trend” in the share of homes for sale whose asking price had fallen by 5 percent or more in the spring and summer.

Currently, the asking price of about 6 percent of homes listed on the website has been revised downwards — the highest percentage since before the pandemic, Zoopla said.

While price revision is a common seasonal trend in the fall, Zoopla added that given the current economic backdrop, “we see this as a step towards more of a buyer’s market after two years of a red-hot seller’s market.”

And added: “Looking ahead, higher mortgage rates will have the greatest impact on activity in more expensive markets and areas that have registered the largest price increases during the pandemic.”

Buyers in regional markets and first-time buyers in London and southern regions, where homes are more expensive, will benefit from the stamp duty hike announced last week.

But according to Donnell, the rise in mortgage rates will “erodize much of the profits” from the stamp duty changes.

Benham and Reeves director Marc von Grundherr said: “The market is now at a bit of a tipping point where house prices have continued to rise rapidly, but the reality for many buyers is that they are no longer able to finance themselves financially. stretch. .’